Constructural Dynamics, Inc. v. Thomas P. Carney, Inc., No. 1104 EDA 2021, 2022 Pa. Super. Unpub. LEXIS 1500 (Pa. Super. July 1, 2022), reargument denied (Sept. 8, 2022).

Like many prompt payment acts, Pennsylvania’s Contractor and Subcontractor Payment Act (CASPA) permits owners and contractors to withhold payment for good faith claims — but not forever. Owners and contractors who wait too long could find themselves litigating prompt payment claims and paying the penalties those acts impose on procrastinating payors. A recent decision by the Pennsylvania Superior Court provides some guidance on how long is “too long” to withhold.

The decision arose from a breach of contract action by concrete supplier Silvi Concrete Products, Inc. (Silvi) against contractor Thomas P. Carney, Inc. (Carney). Silvi supplied concrete to Carney for the construction of a Philadelphia luxury hotel. Initial tests of Silvi’s concrete indicated that it broke at lower-than-expected compression strengths. Carney immediately terminated Silvi and hired a replacement supplier. Supplemental testing was conducted, during which Carney withheld payments to Silvi. The project engineer ultimately accepted Silvi’s concrete. Even after acceptance, Carney continued to withhold payment.

Silvi filed a complaint against Carney, alleging breach of contract, violation of CASPA, and unjust enrichment. Carney counterclaimed for breach of contract. A jury found in favor of Silvi on its breach of contract claim and awarded its unpaid $160,000 contract balance and $1 million in lost profits. In a subsequent bench trial, the court denied Silvi’s CASPA claim, finding that Carney had withheld payment in good faith. Carney appealed, and Silvi cross-appealed.

Silvi asserted that the trial court abused its discretion in denying its CASPA claim. It argued that in finding that Carney breached the parties’ contract, the jury implied that Silvi’s CASPA claim was valid. Silvi also argued that Carney did not prove that the amount it withheld was reasonably related to the value of its claim.

The appeals court concluded that the jury’s finding that Carney breached the contract was irrelevant to the validity of Silvi’s CASPA claim. Despite the breach, Carney had good faith basis for withholding payment — at least initially. And the amount withheld ($160,000) was reasonable since it was significantly outweighed by the potential cost to remove and replace the concrete ($13 million to $19 million). The court remanded for the trial court to reexamine whether Carney’s withholding after the project engineer accepted the concrete was in good faith, and whether Silvi could receive CASPA penalties as a result.

In its cross-appeal, Carney argued that the trial court erred by allowing Silvi to present evidence of its lost profits because its claim for lost profits was in essence a “lost volume seller” claim. Pennsylvania disallows “lost volume seller” claims because “[a]pplication of the doctrine would encourage the non-breaching party to do nothing to minimize its damages.”

The appeals court rejected Carney’s argument. Despite disallowing “lost volume seller” claims, “Pennsylvania permits a non-breaching party that has reasonably attempted to mitigate its damages to recover damages for lost profits.” The trial court specifically found that Silvi “made every reasonable effort to mitigate the lost sales and damages it suffered at the hands of Carney by reselling the material, thereby fulfilling the non-breaching party’s duty to mitigate losses.” The trial court thus properly allowed the lost profits evidence.

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